OPERATING AGREEMENT
THIS
OPERATING AGREEMENT, made and entered into this dl day of September, 2008,
by and between PHOENIX ENERGY
RESOURCE COPORATION, a Nevada Corporation, whose address is 0000 Xxxxxxx
Xxxxx, 0xx Xxxxx,
Xxxxx 000, Xxx Xxxxx, XX 00000, hereinafter referred to as "Leaseholder," and
JMACK ENERGY, LLC, a
Kentucky limited liability company whose address is 000 Xxxxx Xxxxxx Xxxx,
Xxxxxxx Xxxxx, XX 00000 hereinafter referred to as
"Operator."
RECITALS
A. Leaseholder
has a certain interest in leases in Xxxxx County, Kentucky. These leases
have been
selected because of their potential for production.
B. Leaseholder
through application of certain geological data, plans an extensive exploration
program for oil and/or gas production on the above- mentioned leases with these
xxxxx
being the subject of this Operating Agreement.
C. The
Operator, by execution of this Agreement, represents and warrants that he has
substantial
knowledge and experience in the business matters and operations concerning the
management
and production oil and gas and is capable of independently and competently
managing
and evaluating the risks and merits of the production of oil and
gas.
D. Through
continuing research and development of geological data, Leaseholder and
representatives
will select the most appropriate drilling site taking into consideration the
input and
knowledge of the Operator.
E. The
lease referred to herein are the leases recorded in the Xxxxx County Clerk's
office which are
fully described in Exhibit "A" attached hereto and incorporated by
reference.
NOW
THEREFORE, for and in consideration of the mutual promises and benefits to each
of the parties, the sufficiency of which is hereby acknowledged and other good
and valuable consideration, the parties agree as follows:
ARTICLE
I
The
Leaseholder does hereby retain the Operator as an independent contractor for the
drilling, management and operation of the well(s) located on the leases setout
in Exhibit A and currently located in Xxxxx County, Kentucky. In exchange for
the services to be rendered by the Operator, the Leaseholder shall pay to
Operator as compensation an amount equal to a five (5%) percent overriding
royalty interest of all oil and/or gas produced from the above mentioned leases
held by Leaseholder. Leaseholder shall pay to the Operator all sums due the
Operator from the sale of oil and/or gas within ten (10) days of Leaseholder's
receipt of the sale proceeds received from the oil and/or gas
purchaser.
ARTICLE n
WELL INTERESTS, DEPTH AND COSTS
1.
Leaseholder shall determine, with input from the Operator, the depth said
well(s) shall be
drilled which depth may range from approximately feet to approximately
feet, depending on the location of the
well(s) and the geological data pertaining thereto.
Leaseholder shall exercise its sole judgment and discretion in making such
decisions.
2. The
Leaseholder and Operator shall estimate and agree on the cost for the drilling
and completion of said well(s) before Operator commences any drilling operation.
The Leaseholder shall be responsible for paying all costs owed to third party
subcontractors, the hiring of which must be pre-approved by the
Leaseholder.
ARTICLE
in COMPLETION
In the
event Leaseholder determines that any given well(s) is capable of commercial
production of oil and/or gas, then the Operator shall commence completion and
put such well(s) on production within thirty (30) days of drilling as weather
permits.
ARTICLE
IV OPERATION AND MANAGEMENT
1. Leaseholder
hereby appoints and Operator hereby accepts the duties and obligations
of
Operator. Operator shall have the power and authority to act and function in
this management capacity
in all respects affecting the production of said well.
2. The
Operator shall oversee the drilling of any well(s) and their completion as well
as the
maintenance and operation of the well(s) covered by this agreement on a daily
basis. The Operator
shall provide the necessary services and professional oversight for the
successful commercial
operation of the well(s), including, but not limited to, the pumping and
marketing all oil
and/or gas produced from the well(s), the performance of all maintenance and
upkeep necessary
in order to produce the well(s), providing weekly and monthly production
reports, providing
copies of the oil run tickets by the last day of each month that oil is sold,
and overseeing
and insuring compliance with all local, stale and federal regulations and the
timely filing of
documents necessary for permits and bonds with the appropriate governmental
entity. Failure
of Leaseholder to strictly enforce any of the provisions of this Paragraph shall
not constitute
a waiver thereof.
3. If
the Leaseholder reasonably determines that an enhancement or secondary recovery
would be
beneficial to any well(s), then Operator agrees to perform and oversee the
installation operation
and maintenance of this system.
ARTICLE V
TERMINATION
1. This
Operating Agreement shall remain in full force so long as the weB(s) is being
drilled, completed, and as long as the well(s) remains a commercially productive
well(s) and the leases or any lease as set out in Exhibit A is in full force and
effect.
2. In the
event the Leaseholder determines, in its sole discretion, that the well(s) is
not commercially
productive, then it shall advise the Operator of this decision and this
Operating Agreement
shall terminate as to that well(s).
3. In the
event the well(s) does not prove to be commercially productive, then the
Leaseholder
may, in its sole discretion, abandon the well(s) and the Operator shall then
take all steps
necessary to plug this well(s) pursuant to all federal, state and local
regulations and to secure
the release of all bonds posted in association with the
well(s).
4. The
Leaseholder shall also have the right to terminate this Operating Agreement if
the Operator
fails to perform or observe any term, covenant, condition, or agreement required
to be performed
or observed by Operator under this agreement. Leaseholder shall provide Operator
written
notice of any breach and default and Operator shall then have ten (10) days to
correct the default
to the satisfaction of the Leaseholder
5. If
Operator : (a) becomes insolvent or becomes unable to pay its debts as they
mature, (b) makes
an assignment for the benefit of creditors, (c) is the subject of any proceeding
instituted
by or against it under any bankruptcy or insolvency law alleging that it is
insolvent or unable to
pay its debts as they mature, (d) commences an action or has commenced against
it any action or proceeding seeking any reorganization, merger, arrangement, composition,
readjustment,
liquidation, dissolution, or similar relief under any present or future law,
statute, or regulation,
or (e) if any trustee, custodian, receiver, or liquidator is appointed
voluntarily or
involuntarily for it or any material part of its assets. This agreement shall immediately terminate after Leaseholder provides Operator written notice. Leaseholder shall be entitled to recover its costs, including attorney fees, for any damages it may incur as a result of Operator's breach of this agreement.
involuntarily for it or any material part of its assets. This agreement shall immediately terminate after Leaseholder provides Operator written notice. Leaseholder shall be entitled to recover its costs, including attorney fees, for any damages it may incur as a result of Operator's breach of this agreement.
ARTICLE
VI MISCELLANEOUS.
1. Leaseholder
covenants with Operator that it is, or will be, the true and lawful owner of
the
leases to be drilled under this agreement, and that it has good right and full
power to assign and
transfer the rights in the well site(s) on such leases and that there has been
no default of any covenants,
agreements, terms or conditions contained in the leases.
2. The laws
of the Commonwealth of Kentucky shall govern the construction of this
agreement
and the rights, remedies, and duties of the parties hereto. The parties hereto
agree that the state
courts located in the Commonwealth of Kentucky shall have exclusive jurisdiction
with regard to
any litigation relating to this Agreement and the parties agree that venue shall
be proper in county
in which the lease interest lies.
3. Time
shall be of the essence in the performance by the Operator of all of Operator's
covenants,
obligations, and agreements under this agreement.
4. The
invalidity or unenforceability of any provision of this agreement shall not
affect or impair
the validity or enforceability of any other provisions of this
agreement.
LEASEHOLDER:
PHOENIX
ENERGY RESOURCE COPORATION
Xxxx
Xxxxxx Xxxxxxxx, CEO
OPERATOR:
JMACK
ENERGY, LLC
Xxxx X.
Xxxxxxx, Member
STATE
COUNTY
OF
SUBSCRIBE,
SWORN TO AND ACKNOWLEDGED Xxxxxxxx, CEO of Phoenix Energy Resource Corporation,
a Nc behalf of said corporation, on this the ■Z-
Y day of
Sepi ie by,
Xxxx Xxxxxx •ration, acting by and on
NOTXRJ>UBLIC
- STATE AT LARGE My Commission Expires: r&ee.
37,
Zoux
)
COUNTY OF
XXXXXX)
SUBSCRIBE,
SWORN TO AND ACKNOWLEDGED before me by, Xxxx X. Xxxxxxx, member of JMACK Energy,
LLC, a Kentucky limited liability company, acting by and on behalf of said
limited liability company on this the 13\-S day of September;
2008.
: - STATE AT LARGE My Commission
Expires:
4
PREPARED
BY:
D. Bditey
Xxxxxx
XXXXXXXX
4 XXXXXX, P.L.L.C.
X.X. Xxx
000
Xxxxxxx
Xxxxx, XX 00000-0000
(000)
000-0000
